BRIC countries bearing brunt of downturn

The CIS states are likely to be hit by the global financial crisis more than any other developing countries according to a new report from the International Monetary Fund, which is also predicting Russia’s previously robust GDP growth could slow to 3.5%.

The BRIC countries – Brazil, Russia, India, and China – are not going to take over as the motor of the world economy, according to the International Monetary Fund. Their equities markets in the BRIC’s have moved on from the 2005-2007 bull run, to suffer big falls as their economies slow.

India will see a fall of over 3% in GDP growth, Brazil – almost 2%, and Russian GDP growth will decline 2.6% according to the IMF. Only China, with its cheap labour and the world’s largest currency reserves, will grow by more than 8 % in 2009 – and that's still 3 % less than in 2007.

Developing countries have been hedging risk by buying U.S. Treasury bonds and, in the process, supporting the American financial system according to Andrey Stolyarov, Associate Professor at the Higher Economic School.

“The share of the developing countries in world GDP has grown, and so has their role in the global financial system during the crisis as well. Chinese and Arab investment funds are saving the American financial system by buying US bonds.”

However growing demand for the goods produced in developing countries has driven their rapid development over the last few years. And that's given a huge boost to demand in their domestic markets, which is likely to sustain growth according to Mark Rubinshtein, Chief Analyst at Metropol.

“A new phenomenon is rising demand in the home population of the BRIC countries. Now we are seeing a drop in demand from developed countries, but we going to have the internal demand sustaining itself a little longer in developing countries.”

And the role of the BRIC nations in the global financial system is likely to be enhanced following the G 20 meeting in Washington next weekend – if they can solve the tricky problem of finding common ground among themselves.